JAIIB PPB Paper-2 Module-B Unit 15: Priority Sector Advances

23/03/2023

Table of Contents

JAIIB Paper 2 (PPB) Module B Unit 15: Priority Sector Advances (New Syllabus)

The Institute of Indian Banking and Finance (IIBF) has recently announced the revised syllabus and exam format for the JAIIB Exam 2023. The upcoming exam will comprise of four papers, with Paper 2 (Principles & Practices of Banking) covering Unit 15: Priority Sector Advances. This particular unit holds significant importance for candidates, as it will greatly impact their performance in the exam.

To assist candidates in comprehending the topic, we will provide all the necessary details related to Unit 15: Priority Sector Advances of JAIIB Paper 2 (PPB) Module B: Functions of Banks. We strongly recommend candidates to refer to this article and also utilize our Online Mock Test Series to enhance their understanding of Foreign Currency Accounts for Residents and other related aspects.

For candidates appearing for the JAIIB Certification Examination 2023, it is essential to comprehend each unit in the syllabus, including the Marketing unit. This unit holds great importance in the banking industry, and candidates must prepare thoroughly to excel in the exam and establish a successful career in the banking sector.

Priority Sector Advances

In 1980, all commercial banks were advised to achieve the target of priority sector lending at 40 per cent of the aggregate bank advances by 1985. Sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. The guidelines have undergone changes over the period and the a revised Master Directions – Priority Sector Lending (PSL) – Targets and Classification was issued in September 2020.
The targets and sub-targets as fixed for each category are applicable to every commercial bank [including Regional Rural Bank (RRB), Small Finance Bank (SFB), Local Area Bank] and Primary (Urban) Co- operative Bank (UCB) other than Salary Earners’ Bank.

Targets/Sub-Targets For Priority Sector

The targets and sub-targets for banks under priority sector are as follows:

#Revised targets for weaker sections will be implemented in a phased manner as indicated below

#Revised targets for Small & Marginal farmers and Weaker sections are implemented in a phased manner as indicated below;

(* All domestic banks (other than UCBs) and foreign banks with more than 20 branches are required to ensure that the overall lending to Non-Corporate Farmers (NCFs) does not fall below the systemwide average of the last three years’ achievement separately notified every year. The applicable target for lending to the non-corporate farmers for FY 2021-22 is 12.73% of ANBC or CEOBE whichever is higher. All efforts are to be made by banks to reach the level of 13.5 percent of ANBC (erstwhile target for direct lending to agriculture sector).

Adjustments for weights in PSL Achievement

Adjustments for weights in PSL Achievement To address regional disparities in the flow of priority sector credit at the district level, the districts have been ranked on the basis of per capita. RRBs, UCBs, LABs and foreign banks are exempted from this.

Categories Of Priority Sector

Export Credit

Export credit under agriculture and MSME sectors can be included in the respective categories. Export credit includes pre-shipment and post-shipment export credit. Other export-credit is classified as:

Non-achievement Of Priority Sector Targets

Banks with shortfall in lending to priority sector are allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) (NABARD) and other funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the RBI from time to time.
With effect from March 31, 2021, UCBs (excluding those under all-inclusive directions) are also required to so contribute. The interest rates on banks’ contribution to RIDF or any other funds, tenure of deposits, etc. is fixed by RBI.

Common Guidelines For Priority Sector Loans

Rate of Interest: The rate of interest on various priority sector loans will be as per RBI’s directives issued.
Service Charges: No loan related and adhoc service charges/inspection charges should be levied on priority sector loans up to Rs. 25,000. In the case of SHGs/JLGs, this limit is per member.
Receipt, Sanction/Rejection/Disbursement Register Records of loans – the date of receipt, sanction/ rejection/disbursement with reasons should be maintained and shown to all inspecting agencies.
Issue of Acknowledgement of Loan Applications An acknowledgement for loan applications should be given, and the bank’s decision to be communicated in writing to the applicants within the time limit fixed by the Board.

Other Modes Of Lending To Priority Sectors

Investments by banks in securitised assets (not applicable to RRBs and UCBs).
Transfer of Assets through Direct Assignment /Outright purchase (not applicable to RRBs and UCBs)
Inter Bank Participation Certificates (IBPCs) (not applicable to UCBs)
Priority Sector Lending Certificates

Co-ordination Between Banks and NBFCs:

Two modes for priority sector lending through NBFCs are permitted:

Credit to NBFCs (including HFCs) for on-lending: Up to 5% of total PSL (Quarterly average)
Co-origination of loans: Joint contribution of credit at the facility level.

JAIIB PPB Module B Unit- 17 Finance to MFIs Co-Lending Arrangements With NBFCs (Ambitious Baba) PDF